Long-Term Capital Gains (LTCG) on Equity

What Exactly Is a Capital Gain on Equity?

Before diving into the long-term variant, it helps to understand what a capital gain means in the context of equity investing. When you purchase shares of a company listed on NSE or BSE and later sell them at a price higher than your purchase price, the difference is called a capital gain. Conversely, if you sell at a lower price, you incur a capital loss. The Income Tax Act, 1961 treats these gains and losses as a separate category of income called 'Capital Gains', distinct from salary income, business income, or income from other sources.

Capital gains are broadly divided into two categories based on the holding period of the asset: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). For listed equity shares and equity-oriented mutual funds, the dividing line is a holding period of 12 months. If you sell within 12 months of purchase, the gain is classified as a short-term capital gain. If you sell after holding for more than 12 months, it becomes a long-term capital gain.

The holding period is calculated from the date of acquisition to the date of transfer (i.e., the date of sale). It is important to note that for shares purchased through the stock exchange, the date of acquisition is the trade date, not the settlement date. Similarly, in the case of bonus shares, the holding period starts from the date the bonus shares are allotted, not from the date the original shares were purchased. For rights shares, the holding period begins on the date of allotment of the rights shares. Getting the holding period right is critical because a difference of even one day can change the tax treatment dramatically.

Another important concept is the difference between 'listed' and 'unlisted' equity shares. The LTCG provisions under Section 112A of the Income Tax Act apply specifically to listed equity shares (traded on a recognised stock exchange in India) and units of equity-oriented mutual funds. Unlisted shares are governed by a separate provision - Section 112 - with a different holding period threshold (24 months for unlisted shares to be treated as long-term) and a different tax rate. This guide focuses specifically on listed equity shares and equity-oriented mutual funds.

Equity-oriented mutual funds, as defined for tax purposes, are funds that invest at least 65% of their corpus in equity and equity-related instruments of domestic companies. This threshold has been a consistent definition over recent years, though investors should verify the latest regulatory definition. Hybrid funds, debt funds, and international funds may not qualify as equity-oriented for this purpose and would be taxed differently. Always check the fund's asset allocation certificate or consult your tax adviser before assuming a fund qualifies as equity-oriented.

The Holding Period Rule: What Counts as Long-Term?

The 12-month holding period rule is the cornerstone of the LTCG framework for equity. However, applying this rule correctly requires a clear understanding of when the clock starts and stops, as well as some special situations that can affect the calculation.

For shares bought through the secondary market (i.e., bought directly on NSE or BSE), the holding period begins from the date of the purchase transaction. Since Indian stock markets operate on a T+1 settlement cycle (as of recent years), shares are credited to your Demat account one trading day after the trade date. However, for the purpose of computing the holding period under the Income Tax Act, it is the trade date (the date of contract) that matters, not the settlement date. So if you bought shares on 1 April 2023 and sold them on 2 April 2024, that would be just over 12 months, and the gain would qualify as LTCG.

For shares received through an Initial Public Offering (IPO), the holding period begins from the date of allotment. For shares received as a gift or inheritance, the holding period of the previous owner is included when calculating the recipient's holding period. This is a beneficial provision - if your father held shares for eight years and gifted them to you, and you sell them one year later, the gain would be treated as LTCG because the combined holding period exceeds 12 months.

For shares acquired through Employee Stock Option Plans (ESOPs), the holding period begins from the date of exercise of the option (i.e., the date the shares are allotted to the employee upon exercising the ESOP), not from the date the option was granted. This is an important distinction because the gap between grant date and exercise date can be several years, yet the tax holding period for capital gains purposes only begins at allotment.

In the case of bonus shares, as mentioned, the holding period starts from the date of allotment of the bonus shares. This means that if you held the original shares for three years but received bonus shares just six months before selling, the gain on the bonus shares would be classified as short-term, while the gain on the original shares (adjusted for the bonus) would be long-term.

For units of equity mutual funds purchased through a Systematic Investment Plan (SIP), each SIP instalment is treated as a separate purchase. The holding period is calculated individually for each unit purchased. So if you started a SIP in January 2022 and redeemed all units in February 2023, the units purchased in the January 2022 instalment would qualify as LTCG (held for more than 12 months), while units purchased in the January 2023 and February 2023 instalments would be STCG. Fund houses typically provide a capital gains statement that segregates gains by holding period, which can be directly used for tax filing.

Tax Rate on LTCG: The Numbers Explained

The tax rate applicable to LTCG on equity has been a subject of significant discussion and revision over the years. When LTCG tax on equity was reintroduced by the Finance Act 2018 after a gap of fourteen years, it was set at 10% on gains exceeding Rs 1 lakh in a financial year. The Finance Act 2024 revised this rate upward. As of the time of writing, investors should refer to the latest Finance Act for the current applicable rate, as the Budget can change these numbers.

The key features of LTCG taxation on equity that have remained consistent are: (a) the tax is levied on gains, not on the entire sale proceeds; (b) it applies only to gains exceeding the specified annual exemption threshold; (c) it does not benefit from indexation (unlike debt fund or property LTCG); and (d) it is computed at a flat rate regardless of the investor's income tax slab.

The flat rate nature of LTCG tax on equity is actually a significant benefit compared to other assets. For example, if you are in the highest income tax slab and earn Rs 10 lakh in long-term equity capital gains, you pay tax only at the flat LTCG rate on the amount exceeding the threshold, rather than at the marginal slab rate of 30% plus surcharge and cess. This makes equity investing tax-efficient for high-income individuals.

Surcharge and health and education cess apply on top of the basic LTCG tax rate. The surcharge rate depends on the investor's total income level. For individuals, surcharge is levied at varying rates as total income crosses certain thresholds. However, there is an important relief for equity LTCG: the surcharge on LTCG under Section 112A is capped at 15%, regardless of the taxpayer's total income. This is a material benefit for very high net-worth individuals, for whom the uncapped surcharge on other income types can be significantly higher.

For Non-Resident Indians (NRIs), LTCG on equity is also taxed at the applicable flat rate (refer to the latest Finance Act), though TDS (Tax Deducted at Source) provisions apply. The buyer (or the fund house in the case of mutual fund redemptions) is required to deduct TDS on LTCG for NRIs. NRIs may also be able to avail of treaty benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence, which can modify the applicable rate. NRI investors should specifically consult a qualified tax professional given the additional complexity.

Securities Transaction Tax (STT) plays an important role in the LTCG framework. The concessional LTCG rate under Section 112A applies only to transfers on which STT has been paid. STT is automatically deducted at the time of every buy and sell transaction through a recognised stock exchange, so for normal secondary market transactions this condition is automatically satisfied. However, for certain off-market transactions or shares received through non-standard routes, the STT condition must be verified carefully.

The Exemption Threshold and How It Works

One of the most taxpayer-friendly features of the LTCG regime on equity is the annual exemption threshold. Gains up to this threshold in any given financial year are completely exempt from LTCG tax. Gains beyond this threshold are taxed at the applicable flat rate. This exemption directly reduces the tax liability for the vast majority of small and retail investors.

The Finance Act 2018 originally set this threshold at Rs 1 lakh per financial year. The Finance Act 2024 revised this threshold upward. Investors should check the current threshold applicable for the financial year in which they are filing. The threshold applies per financial year, not per transaction or per holding. So if you have multiple transactions during the year, all LTCG transactions are aggregated, and only the net LTCG exceeding the threshold is taxable.

An important subtlety: the exemption is available only against LTCG; it cannot be used to offset STCG or any other income. Also, it is worth noting that the exemption is per individual, not per family. Spouses filing separately each get their own exemption threshold, which creates a legitimate planning opportunity for families where both spouses hold equity portfolios.

Loss set-off interacts with the exemption in a specific way. If you have both LTCG and long-term capital losses (LTCL) in the same year, you first set off the losses against the gains to arrive at net LTCG, and then apply the exemption threshold to the net LTCG. You cannot first claim the exemption and then set off the loss. For example, if you have Rs 5 lakh of LTCG and Rs 2 lakh of LTCL, the net LTCG is Rs 3 lakh. After the exemption threshold, the taxable LTCG is the net gain minus the threshold. This sequential treatment is mandated under the Income Tax Act.

For investors who use Systematic Withdrawal Plans (SWPs) in equity mutual funds or who regularly book partial profits, the exemption threshold becomes a powerful planning tool. By carefully timing redemptions across financial years, investors can ensure that annual LTCG is kept within or close to the exemption limit, thereby significantly reducing or even eliminating the LTCG tax outgo. This strategy is discussed in detail in the tax planning section of this guide.

The exemption threshold also plays into the concept of 'tax harvesting' - a strategy where investors deliberately sell and repurchase holdings at the end of a financial year to reset the cost basis and utilise the annual LTCG exemption. Tax harvesting is entirely legal and is an accepted tax planning technique. The goal is to book LTCG within the exemption threshold each year, pay zero tax, and effectively step up the cost of acquisition, thereby reducing future taxable gains.

Grandfathering Clause: Protecting Pre-2018 Gains

When the Finance Act 2018 reintroduced LTCG tax on equity after fourteen years of exemption, it included a grandfathering clause to ensure that investors were not taxed on gains they had already accrued during the period when gains were tax-free. This grandfathering mechanism is one of the most nuanced aspects of LTCG on equity and is relevant for any investor who held shares or equity funds as of January 31, 2018.

Under the grandfathering clause, for shares and equity mutual fund units acquired before February 1, 2018, the cost of acquisition for computing LTCG is deemed to be the higher of: (a) the actual cost of acquisition, or (b) the lower of the fair market value as on January 31, 2018, and the actual sale consideration. In simpler terms, the January 31, 2018 price acts as a 'floor' for the cost of acquisition - gains accrued up to that date are grandfathered and not taxed.

Let's understand the logic with an illustrative example. Suppose you bought shares of a company at Rs 100 per share many years before 2018. By January 31, 2018, the share price had risen to Rs 500. If you sell the shares in the current financial year at Rs 800, your LTCG is computed not on Rs 800 minus Rs 100, but on Rs 800 minus Rs 500 (the January 31, 2018 price, which becomes the deemed cost). So the taxable gain is only Rs 300 per share, not Rs 700. The Rs 400 gain accrued before February 1, 2018, is completely exempt.

Now consider a different scenario: you bought shares at Rs 100, the January 31, 2018 price was Rs 500, but you sell them today at Rs 400. Your sale consideration (Rs 400) is less than the January 31, 2018 fair market value (Rs 500). In this case, the deemed cost of acquisition is Rs 400 (the lower of Rs 500 and Rs 400, which is Rs 400). Since cost equals consideration, there is neither a gain nor a loss - the capital gain is zero. You do not get to claim a loss of Rs 100 (the difference between the January 31 price and the sale price), as the grandfathering mechanism prevents you from creating artificial losses by using the grandfathered price.

For equity mutual funds, the January 31, 2018 NAV of the specific scheme is used as the grandfathered price. Fund houses published the January 31, 2018 NAVs for all their schemes at the time, and these are available on their websites. For shares listed on NSE or BSE, the highest price traded on January 31, 2018 is used as the fair market value for grandfathering purposes. If shares were not traded on January 31, 2018, the highest price on the last trading day before that date is used.

The grandfathering clause is a one-time provision that applied to the transition from the pre-2018 exempt regime to the post-2018 taxable regime. New investors who purchased shares after February 1, 2018, are not affected by this clause - their cost of acquisition is simply the actual purchase price. However, investors who have been in the market for a long time and still hold shares bought before February 2018 must be careful to apply the grandfathering formula correctly when computing LTCG.

LTCG on Equity Mutual Funds: Key Differences

While the broad framework for LTCG is the same for both direct equity shares and equity mutual funds, there are some practical differences that investors need to be aware of. These differences primarily relate to how transactions are recorded, how the holding period is calculated for SIP investments, how TDS works, and how gains statements are generated.

For direct equity shares bought on NSE or BSE, the investor directly sees the buy and sell prices in their broker's contract notes. Computing LTCG is relatively straightforward - sale price minus purchase price (or grandfathered cost, as applicable), subject to the exemption threshold. The broker may provide a P&L or capital gains report, but the investor typically has enough information to independently verify the computation.

For equity mutual funds, the process is slightly more involved. Each unit purchased through a lump sum investment or each SIP instalment creates a separate lot with its own cost of acquisition and purchase date. When the investor redeems units, the tax system uses a First In, First Out (FIFO) method by default - the oldest units are deemed to be redeemed first. This FIFO method is mandated by the Income Tax Act and cannot be changed by the investor. FIFO actually benefits long-term investors because the oldest units are typically the most likely to be held for more than 12 months, meaning they qualify for the lower LTCG rate rather than the higher STCG rate.

Mutual fund houses provide detailed capital gains statements that list every transaction, the holding period of each lot, and the nature of the gain (STCG or LTCG). CAMS and KFintech, which are the two major Registrar and Transfer Agents (RTAs) for mutual funds in India, also provide consolidated capital gains statements across all fund houses on their portals. These statements are extremely useful for tax filing and are designed to be used directly as inputs for the capital gains schedule in the Income Tax Return (ITR) form.

For resident investors, equity mutual funds do not deduct TDS on redemption. The investor is directly responsible for computing and paying advance tax if the LTCG liability is significant. For NRI investors, fund houses deduct TDS on LTCG at redemption. This is an important operational difference that NRI investors must plan for, since TDS is deducted upfront regardless of whether the gains are within the exemption threshold.

Growth option versus Dividend option (now called Income Distribution cum Capital Withdrawal or IDCW option) in mutual funds has a significant tax implication. In the growth option, no payouts are made and the entire appreciation is reflected in the NAV. When you redeem, the difference between the redemption NAV and purchase NAV is treated as LTCG (or STCG). In the IDCW option, payouts received by the investor are classified as dividend income and taxed at the investor's slab rate. From a tax efficiency standpoint, the growth option is generally more efficient for investors in higher tax brackets, since LTCG is taxed at a concessional flat rate whereas dividend income is added to total income and taxed at the marginal slab rate. However, this is a general observation and specific circumstances vary - always consult a tax adviser.

Set-Off and Carry-Forward of Long-Term Capital Losses

Capital markets do not always go up. Investors frequently experience losses, and the Income Tax Act provides specific rules for how capital losses can be used to reduce tax liability. Understanding these set-off and carry-forward rules for long-term capital losses (LTCL) is an important part of managing your overall tax position.

The fundamental rule is that long-term capital losses can only be set off against long-term capital gains. You cannot use LTCL to offset STCG, salary income, business income, or any other category of income. This restriction is called the 'ring-fencing' of capital losses. Within capital gains, LTCL can only go against LTCG - not STCG.

Short-term capital losses, by contrast, have more flexibility - they can be set off against both STCG and LTCG. So if you have STCL from equity or any other capital asset, it can partially reduce your LTCG tax liability.

If you are unable to set off all your LTCL in the current financial year (because you do not have sufficient LTCG in the same year), you can carry forward the unabsorbed LTCL to subsequent financial years. The carry-forward period is eight financial years. Each year, the carried-forward LTCL can only be set off against LTCG earned in that year. This eight-year carry-forward window is a valuable safety net for investors who experience significant market downturns.

There is an important procedural requirement for carry-forward: you must file your Income Tax Return on or before the due date (typically July 31 for individuals not subject to tax audit) in the year you incur the loss. If you miss the filing deadline, you lose the right to carry forward the loss. This makes timely ITR filing critical for investors who have made capital losses - both to preserve the carry-forward right and to maintain a clean tax record.

The exemption threshold interacts with loss set-off in a specific order: first, you net all LTCG and LTCL for the year (including brought-forward LTCL from previous years), and then apply the exemption threshold. So if you have gross LTCG of Rs 8 lakh and LTCL of Rs 6 lakh, the net LTCG is Rs 2 lakh. After the exemption threshold, the taxable portion is the net LTCG minus the threshold.

For investors who have been carrying forward losses from a particularly bad market year, it is worth explicitly reviewing the carry-forward position each year and planning redemptions to utilise those losses efficiently. Letting carry-forward losses expire unused (because eight years passed without sufficient LTCG to absorb them) is a missed tax-saving opportunity. Again, a tax professional can help map out the optimal approach.

Tax Planning Strategies Around LTCG

LTCG tax planning for equity investors revolves around a few core strategies: systematic tax harvesting, optimal timing of redemptions, utilising the annual exemption threshold, distributing holdings across family members, and coordinating equity gains with other capital gains and losses. None of these strategies require taking investment decisions solely for tax reasons - rather, they are techniques to ensure that after-tax returns are maximised within a sound investment framework.

Tax Harvesting: This is the most widely discussed LTCG planning strategy. It involves selling equity holdings that have unrealised long-term gains and immediately repurchasing the same shares or units, thereby 'booking' the gain and resetting the cost of acquisition to the current market price. When done within the annual exemption threshold, the gain is completely tax-free, but the investor effectively eliminates a future tax liability by stepping up the cost. For example, if you hold shares with a notional LTCG of Rs 1.5 lakh, you can sell shares worth Rs 1 lakh of gains tax-free, repurchase them at the current price, and repeat the exercise in the next financial year for the remaining Rs 50,000. The repurchased shares now have a higher cost basis, so when you eventually sell them in the future, the taxable gain is lower.

Spread Redemptions Across Financial Years: For investors who are planning to make large redemptions (for a house purchase, retirement, or other goals), spreading the redemptions across two or three financial years can allow multiple uses of the annual exemption threshold, substantially reducing the overall LTCG tax.

Utilise the Family Exemption: Each taxpaying family member has their own LTCG exemption threshold. If equity assets are held jointly (or distributed across family members' portfolios, within the framework of legitimate investment planning and gift tax rules), each person's threshold can be independently utilised. Note that gift tax rules and clubbing provisions under the Income Tax Act must be respected - gains from assets gifted to a minor child are clubbed with the parent's income, and there are specific rules for gifts to spouses as well.

Sell Loss-Making Positions Before Year-End: Booking long-term capital losses before the financial year ends allows you to set them off against LTCG in the same year, reducing the taxable gain. If you have unrealised losses in your portfolio as the financial year approaches its end, consider whether realising those losses serves your investment objectives - if you remain bullish on the underlying investment, you can sell and repurchase after a nominal period (though for equity, unlike debt, there is no specific 'wash sale' rule under Indian tax law, but one should ensure the transactions are genuine and not simply circular).

Advance Tax Compliance: LTCG from equity can create a significant advance tax liability if your annual gains are substantial. The advance tax schedule requires quarterly payments (15% of estimated annual tax by June 15; 45% by September 15; 75% by December 15; and 100% by March 15 of the relevant financial year). If you fail to pay advance tax correctly, interest under Sections 234B and 234C of the Income Tax Act applies. For investors who make large redemptions during the year, particularly in the first three quarters, it is important to estimate LTCG and pay advance tax accordingly.

Coordinate with Other Capital Gains: If you have taxable LTCG from equity, check whether you also have any capital losses from debt mutual funds, real estate, or other assets. Subject to the applicable set-off rules, losses from different asset classes may be available to reduce your overall capital gains tax liability.

Reporting LTCG in Your Income Tax Return

Filing the correct ITR form and accurately reporting LTCG is a compliance requirement that every equity investor must fulfil. The Income Tax Department has, over the years, made it progressively more difficult to inadvertently omit capital gains from tax returns, as the Annual Information Statement (AIS) and the Tax Information System (TIS) now capture virtually every stock market transaction through STT data and demat account information.

For most individual investors, the appropriate ITR form for reporting LTCG is ITR-2 (for individuals and HUFs without business or professional income) or ITR-3 (for individuals and HUFs with business or professional income, including F&O traders). ITR-1 (Sahaj) cannot be used if you have any capital gains income - even a small gain from one mutual fund redemption disqualifies you from using ITR-1.

Within the ITR form, LTCG from equity is reported under Schedule CG (Capital Gains). There are separate sub-sections for LTCG under Section 112A (equity and equity-oriented funds) and LTCG under Section 112 (other assets). You must report each transaction separately - the scrip name or fund name, ISIN, number of units or shares, sale date, sale consideration, purchase date, purchase cost (or grandfathered cost, as applicable), and the computed gain or loss.

The Income Tax portal has pre-filled certain capital gains information in recent years based on data from depositories and fund RTAs. However, the pre-filled data may not always be complete or entirely accurate, particularly for grandfathered transactions or complex acquisition routes (ESOPs, IPOs, bonus shares, etc.). Investors should always cross-verify the pre-filled data against their own records - broker contract notes, DMAT account statements, and mutual fund account statements.

For high-volume traders or investors with a very large number of transactions, reporting each transaction individually can be burdensome. The Income Tax portal accepts bulk upload of capital gains data in a specified format, which can be generated from broker or RTA reports. Some brokers and fund RTAs provide ITR-ready capital gains statements in the prescribed format for upload.

If the total income (including LTCG) exceeds the basic exemption limit (the minimum income threshold below which no tax is payable), the investor must file an ITR, even if the LTCG itself is below the exemption threshold. The basic exemption limit is a separate concept from the LTCG exemption threshold - they are not the same thing. Both limits are specified in the Finance Act and are subject to change. Refer to the latest provisions when determining your filing obligation.

Special Situations: ESOPs, IPOs, Buybacks, and Delisted Shares

Beyond straightforward secondary market transactions, equity investors frequently encounter special situations that have their own LTCG implications. Understanding these scenarios prevents costly errors in tax computation.

ESOPs (Employee Stock Option Plans): As mentioned in the holding period section, the cost of acquisition for ESOP shares is the exercise price (the price paid by the employee to acquire the shares upon exercising the option). For the purposes of computing LTCG when the shares are subsequently sold, this is the relevant cost. However, the perquisite value (the difference between the fair market value on the exercise date and the exercise price) is separately taxed as salary income at the time of exercise. This double taxation of the same economic gain is avoided by using the FMV on the exercise date as the cost of acquisition for capital gains purposes - the Income Tax Act specifically provides for this. If the exercise price is lower than the FMV on the exercise date, the cost for capital gains is deemed to be the FMV at exercise.

IPO Investments: Shares allotted through an IPO are treated like any other equity investment for LTCG purposes. The cost of acquisition is the IPO allotment price, and the holding period begins from the allotment date. If you received shares in an IPO allotment and the company is subsequently listed on NSE or BSE, you need to maintain records of the allotment date and allotment price as these will be needed for computing capital gains when you eventually sell.

Share Buybacks: When a company listed on BSE or NSE conducts a share buyback through the open market route, shareholders who tender their shares receive the buyback price. The gain from a buyback is treated as a capital gain (LTCG or STCG depending on the holding period) in the hands of the shareholder. Note that the tax treatment of buybacks has seen changes over recent Budget cycles - specifically, the tax on buyback at the company level and the treatment of buyback proceeds in the hands of shareholders has been modified. Refer to the latest Finance Act provisions.

Delisted Shares: If a company gets delisted from NSE or BSE (either voluntarily or compulsorily), the shares become unlisted. For shares that were previously listed and are now unlisted, the holding period threshold for LTCG changes to 24 months from the date the shares became unlisted (for computing future gains). If you held shares before delisting and the company subsequently gets relisted, the tax treatment may change again. Delisted share transactions are complex and may require specialist tax advice.

Mergers, Demergers, and Bonus Issues: Corporate actions such as mergers and demergers can result in shareholders receiving shares of a new or merged entity. The Income Tax Act has specific provisions governing the cost of acquisition and holding period for shares received in such transactions. Generally, the original cost of the shares tendered is allocated to the new shares received, and the original holding period is carried over. Similarly, bonus shares have a zero cost of acquisition (as no additional payment is made), with the holding period beginning from the allotment date of the bonus shares. These nuances can significantly affect LTCG computations and should be carefully handled in tax returns.

Example

Key benefits

How it works

1. 1
   Acquire Listed Equity Shares or Equity Mutual Fund Units

   Purchase shares on NSE or BSE through a registered broker, or invest in equity mutual funds through a distributor or direct plan. Maintain clear records of the purchase date and purchase price (including any brokerage and STT paid, though STT is not added to cost for equity - only brokerage and transaction charges may be included as cost of acquisition or improvement).

2. 2
   Hold for More Than 12 Months

   Allow the investment to remain in your Demat account (for shares) or mutual fund folio (for units) for a period exceeding 12 months from the date of acquisition. This satisfies the long-term holding period requirement and qualifies any resulting gain as LTCG under Section 112A.

3. 3
   Sell Through a Recognised Exchange (with STT Paid)

   Execute the sell transaction on NSE or BSE through your registered broker. Securities Transaction Tax (STT) is automatically charged on the sale, which is a prerequisite for the concessional LTCG rate under Section 112A to apply. For equity mutual fund redemptions, STT is also applicable on the fund's equity transactions.

4. 4
   Compute the Capital Gain

   Calculate the gain as sale consideration minus cost of acquisition (using the grandfathered cost if the shares were held before February 1, 2018, or the actual purchase price for shares acquired thereafter). Net all LTCG transactions for the financial year and set off any available LTCL (current year or carried forward).

5. 5
   Apply the Annual Exemption Threshold

   Reduce the net LTCG by the applicable annual exemption threshold (refer to the latest Finance Act for the current threshold). Only the amount exceeding the threshold is subject to LTCG tax.

6. 6
   Pay Advance Tax If Required

   If the estimated LTCG tax liability for the year is significant, pay advance tax in the prescribed quarterly instalments by the due dates (June 15, September 15, December 15, and March 15). Failure to do so attracts interest under Sections 234B and 234C of the Income Tax Act.

7. 7
   Report in Income Tax Return and File by Due Date

   Report all LTCG transactions in Schedule CG of ITR-2 or ITR-3 (as applicable) for the relevant financial year. File the return on or before the due date to preserve loss carry-forward rights and avoid penalties. Cross-verify reported data with the Annual Information Statement (AIS) available on the Income Tax portal.

Formula

LTCG (Taxable) = [Sale Consideration - Cost of Acquisition (or Grandfathered Cost)] - Annual Exemption Threshold
Tax Payable = Taxable LTCG × Applicable LTCG Rate + Surcharge (capped at 15% for Sec 112A) + 4% Health & Education Cess

Key takeaways

Frequently asked questions

Related terms